Q and A on health care exchanges in the U.S. health insurance marketplace

Good Neighbor Insurance (dev.gninsurance.com and www.gninsurance.com) is continuing to update our clients on the new health insurance laws that were signed into law in the spring of 2010. There are six major coverage options for those in the US and even though some of the rules and regulations are similar for all many differences are there and it all depends on how old you are and for whom you work. Many critical details of this new insurance law will be clarified in the months and years to come.

These six major coverage options are:

(1) Individual or family coverage (private health care plans)

(2) Employee/employer group option for small businesses (typically under 50 employees)

(3) Employee/employer group option for large businesses (typically larger than 50 employees)

(4) Exchange options through the state you are residing in (fully integrated 1-1-2014 and are quasi-government and private insurance coverage combined)

(5) Medicare (which include Parts A, B, C, and D) for those 65 years onwards

Health Exchanges are, by US federal law, going to be created by each state. States are working on these plans now to have them start rolling out in the next couple of years with a dead line of 1-1-2014. The purposes of health insurance exchanges will be to provide more health insurance options for each citizen of that state. Health exchanges are going to have to follow the same set of rules set up by the US government, signed into law by President Obama on March 2010, and thus the premiums will not be much different than with other methods of getting health insurance. With the state governments getting involved there will be additional rules and laws set up which will, inadvertently, cause the premiums to increase.

Myth #A: If we build it, they will come.

Truth: While health insurance exchanges hold many great benefits, the law as it’s currently written contains very weak penalties for those employers that choose not to participate. As a result, some employers, at first glance, will likely opt to accept the penalties rather than provide coverage for their employees. However, as history has shown us governments raise penalties very quickly since it is an “easy” form of income for the tax coffers. So the penalties for the first couple years will be low but as the years progress those penalties will be a big bite to the bottom line of company’s annual financial statements.

Myth #B: New state exchanges are going to be strictly for the uninsured.

Truth: To be sustainable, state exchanges will need to be as welcoming to those currently insured as they are to the uninsured. They will also need to appeal every bit as much to individuals and small groups that do not qualify for subsidies or tax credits as they do to those who qualify for these incentives. Recognizing this, some states have made it part of their goal to tap into currently insured individuals and groups. To do this, they would be well advised to not only harness private sector distribution channels (such as brokers) but to offer products and services that align with commercial purchaser interests and needs. Only by being inclusive to all individuals can an exchange attract the type of balanced enrollment that will allow it to be a meaningful force in the market.

Myth #C: It will be complicated for employers to cover employees through a health insurance exchange.

Truth: Not true. The beauty of an exchange is that employees get access to a number of great health plans and benefit choices while employers get ease of administration and a single point of contact. The big change for employers will be to convert the funding of their employee health benefits program from defined-benefit to a defined-contribution model. Here employers provide employees with a voucher-like premium contribution; employees then use that premium contribution toward the health plan option they like best within the exchange. Employees who wish to “buy up” to coverage not covered by their employer’s contribution can do so by increasing their premium contribution, generally through payroll deduction.

Truth: Some policymakers falsely believe that by attracting a larger volume of purchasers, an exchange will turn around the rising cost curve. It doesn’t work that way. Health plans will still need to price to the risk and underwriting losses that can’t be made up strictly by volume. That’s because medical trend increases are driven by utilization, provider costs, hospital costs, and an aging and often unhealthy population. So while there should be a small administrative savings, health insurance exchanges are really more about value-based purchasing. Exchanges create an online shopping mall where consumers, employers, and brokers can view health insurance plans side by side and compare benefits, costs, and other features. Each of the plans offered in an exchange includes an essential set of benefits at different levels of cost sharing. By giving individuals the freedom to choose what’s right for their needs and budget, purchasers will be able to determine what is most valuable to them and, as a result, get the greatest value for their dollar.

Myth #E: The creation of health insurance exchanges will eliminate the need for agents and brokers.

Truth: While exchanges will be selling direct to consumers and using a still undefined network of “navigators,” the health reform legislation says that state exchanges can use brokers. But brokers who wish to stay competitive will need to ask themselves “Why would a client use me to purchase exchange coverage when they could go straight to the exchange themselves?” The answer is the same as to why employers use brokers today when they can go directly to a carrier. It’s because brokers, more than anyone else, can provide the information and unbiased recommendations purchasers need to make well-informed decisions, as well as service for both routine issues and more serious policy interpretation concerns. Equally as important is the fact that, despite some other myths, exchanges will not turn health insurance purchasing into an annual transaction. During the course of a year, an individual can encounter many lifestyle changes – including a change in marital status, the birth of a child, a change in income, etc. This means that the need for the broker as “ombudsman” will not diminish, nor will the need for competent and responsive service.